Discussion: Oligopoly and Game Theory
You may have noticed the discussion in Taylor (2014) at the end of Chapter 10 about oligopoly and the prisoner’s dilemma. The prisoner’s dilemma is an example of game theory. A “game” is like a board game, as your optimal move depends on what your opponent does. The same holds in oligopoly, as your own decisions as to what price to charge or how much to produce depend on what your competitors do.
Take a look at the following video that tries to illustrate oligopoly and game theory Clifford, Jacob. (April 27, 2014). Oligopolies and Game Theory- EconMovies #8: The Dark Knight.
Find one other YouTube video on game theory and share the link with your classmates. Then discuss the following issues:
- Did the video or the other video you found help explain the concept of game theory? Or was it just silly?
- Besides oligopoly, can you think of any other situations that game theory is useful for? This can be situations in the business world, in your own workplace, or even something you saw in a movie or TV show.
- What do you find easier to follow – the game theory matrices or the math equations/computations that you’ve used in this class?
Required reading module 3
You will begin learning about the most basic market structure in this video about perfect competition.
Tabarrok, A. & Cowen, T. [Marginal Revolution University]. (2015, January 2). Introduction to the Competitive Firm.
Now read Chapters 9 and 10 from the following book for more detail on these topics. In particular, pay attention to the numerical examples and the “Self-Check Questions” at the end of each section.
Taylor, T. (2014) Microeconomics. OpenStax College.
http://cnx.org/contents/6i8iXmBj@10.174:WXgRcPaN@10/Introduction-to-a-Monopoly
Finally, read this slightly more advanced chapter. Pay special attention to the sections at the end on game theory and the “Policy Response to Oligopoly” section that covers the Herfindahl index:
Beveridge, T. M. (2013). Chapter 8: Between perfect competition and monopoly. A Primer on Microeconomics. [New York, N.Y.] [222 East 46th Street, New York, NY 10017]: Business Expert Press.